Dr Pepper Snapple Group, Inc (DPS)

DPS 
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Dr Pepper Snapple Group (DPS)

Q4 2011 Earnings Call

February 15, 2012 11:00 am ET

Executives

Carolyn Ross - Vice President of Investor Relations

Larry D. Young - Chief Executive Officer, President, Director, Member of Special Award Committee and Member of Capital Transaction Committee

Martin M. Ellen - Chief Financial Officer and Executive Vice President

Analysts

Stephen Powers - Sanford C. Bernstein & Co., LLC., Research Division

Dara W. Mohsenian - Morgan Stanley, Research Division

Mark Swartzberg - Stifel, Nicolaus & Co., Inc., Research Division

William Schmitz - Deutsche Bank AG, Research Division

Bill Leach - Teachers' Retirement System of the State of Kentucky

Caroline S. Levy - Credit Agricole Securities (USA) Inc., Research Division

John A. Faucher - JP Morgan Chase & Co, Research Division

Presentation

Operator

Good morning, and welcome to Dr Pepper Snapple Group's Fourth Quarter and Full Year 2011 Earnings Conference Call. [Operator Instructions] Today's call is being recorded and includes a slide presentation, which can be accessed at www.drpeppersnapple.com. The call and slides will also be available for replay and download after the call has ended. [Operator Instructions] It is now my pleasure to introduce Carolyn Ross, Vice President, Investor Relations. Carolyn, you may begin.

Carolyn Ross

Thank you, Kelly, and good morning, everyone. Before we begin, I would like to direct your attention to the Safe Harbor statement and remind you that this conference call contains forward-looking statements, including statements concerning our future financial and operational performance. These forward-looking statements should also be considered in connection with cautionary statements and disclaimers contained in the Safe Harbor statement in this morning's earnings press release and our SEC filings. Our actual performance could differ materially from these statements, and we undertake no duty to update these forward-looking statements.

During this call, we may reference certain non-GAAP financial measures that reflect the way we evaluate the business, and which we believe provide useful information for investors. Reconciliations of those non-GAAP measures to GAAP can be found in our earnings press release and on the Investor Relations page at www.drpeppersnapple.com.

This morning's prepared remarks will be made by Larry Young, Dr Pepper Snapple Group's President and CEO; and Marty Ellen, our CFO. Following our prepared remarks, we will open the call for your questions.

With that, let me turn the call over to Larry.

Larry D. Young

Thanks, Carolyn, and good morning, everyone. Before I review our fourth quarter results and share our 2012 priorities, I'd like to take a few minutes to recap a few of the great wins our team had in 2011. 2011 certainly poised significant challenges for our industry. The macroeconomic environment remained weak, as input cost inflation drove price increases across consumer staples, further straining consumers' discretionary spending. Despite these conditions, our results proved resilient. Once again, showcasing the strength of our brands and the dedicated focus of our teams as they execute against our strategy.

We increased the distribution on availability of our core SKUs in both grocery and convenience, with CSDs up 8 points in grocery and up 2 points in convenience where it's much harder to penetrate with limited space. Snapple and Mott's also gained 2 points in grocery. As part of our license agreement with Coke and Pepsi, we repatriated approximately 15 million cases back into our company-owned distribution system and outperformed the internal targets we set for these brands. As I've said many times, the alignment of these brands in our system gives us leverage with retailers and allows us to run national programming in accounts where we were not able to do so previously. We're excited about the opportunities that lie ahead for these brands.

We increased immediate consumption availability, and drove sample indications with over 43,000 new fountain valves and 25,000 incremental cold drink placements. Our Coke and Pepsi bottling partners continue to drive strong priority brand execution with display tie-in rates on regular Dr Pepper up close to 2% across both systems. And with strong sponsorship from our executive leadership team, rapid continuous improvement, or RCI as we call it, is gaining traction across the entire organization, helping us drive significant value internally and with our customers.

We launched Sun Drop nationally and partnered with MTV to develop a compelling marketing campaign that speaks directly to the millennial consumer. Our campaign featuring Maggie, the Sun Drop girl, attracted close to 9 million YouTube viewers in 2011.

Using breakthrough flavor and sweetener technology, we introduced Dr Pepper TEN, our product with the same taste and mouth feel as regular Dr Pepper, but with only 10 calories per serving and our tongue in cheek, "It's Not for Women" campaign generated over 230 million media impressions.

We delivered value and convenience to our consumers with new package offerings such as Snapple 64-ounce take home and Hawaiian Punch 10-ounce singles. And while others pull back on their brand investments, we continue to invest behind our brands, engaging and connecting with our consumers to drive long-term growth all while returning almost $775 million to our shareholders in the form of share repurchases and dividends.

Now let's move on to results. For the quarter, bottler case sales declined 2%, lapping 1% growth in the prior year on 4 points of pricing. Dr Pepper grew 2% on the national launch of Dr Pepper TEN and continued growth in Fountain foodservice, lapping 3% growth from the prior-year period. Our core Fountain brands, which are Core 4 plus Sun Drop declined by 4% and together with Crush, the total decline was 6%. Sun Drop added nearly 2 million incremental cases in the quarter and Canada Dry grew 6% on top of 8% growth in the prior year.

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